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Cash Flow Statement The following information has been extracted from the books of Rush Ltd: Profit and loss (extract) for year ended 31/12/2021 € Operating profit 156,000 Interest paid (20,000) Taxation (24,000) Dividends paid (27,000) Retained profit 85,000 Profit and loss balance 01/01/2021 120,000 Profit and loss balance 31/12/2021 25,000 Balance Sheets as at 31/12/2021 31/12/2020 € € Fixed Assets Land and buildings 840,000 620,000 Less depreciation provision (80,000) (50,000) Current Assets Stock 80,000 70,000 Debtors 45,000 35,000 Bank 20,000 15,000 Net Current Assets 125,000 130,000 Less Creditors: amounts falling due within 1 year Creditors 42,000 32,000 Taxation 24,000 28,000 (66,000) (60,000) Net Current Assets 59,000 70,000 Total Net Assets 819,000 640,000 Financed by: Creditors: amounts falling due after 1 year 8% Debentures 250,000 220,000 Capital and Reserves Ordinary share capital issued 340,000 300,000 Share premium 24,000 Profit and loss account 205,000 120,000 Total 819,000 640,000 Required: (a) Reconcile the operating profit to net cash inflow/outflow from operating activities - Leaving Cert Accounting - Question 6 - 2022
Question 6
Cash Flow Statement The following information has been extracted from the books of Rush Ltd: Profit and loss (extract) for year ended 31/12/2021 € Operating profit ... show full transcript
Worked Solution & Example Answer:Cash Flow Statement The following information has been extracted from the books of Rush Ltd: Profit and loss (extract) for year ended 31/12/2021 € Operating profit 156,000 Interest paid (20,000) Taxation (24,000) Dividends paid (27,000) Retained profit 85,000 Profit and loss balance 01/01/2021 120,000 Profit and loss balance 31/12/2021 25,000 Balance Sheets as at 31/12/2021 31/12/2020 € € Fixed Assets Land and buildings 840,000 620,000 Less depreciation provision (80,000) (50,000) Current Assets Stock 80,000 70,000 Debtors 45,000 35,000 Bank 20,000 15,000 Net Current Assets 125,000 130,000 Less Creditors: amounts falling due within 1 year Creditors 42,000 32,000 Taxation 24,000 28,000 (66,000) (60,000) Net Current Assets 59,000 70,000 Total Net Assets 819,000 640,000 Financed by: Creditors: amounts falling due after 1 year 8% Debentures 250,000 220,000 Capital and Reserves Ordinary share capital issued 340,000 300,000 Share premium 24,000 Profit and loss account 205,000 120,000 Total 819,000 640,000 Required: (a) Reconcile the operating profit to net cash inflow/outflow from operating activities - Leaving Cert Accounting - Question 6 - 2022
Step 1
Reconcile the operating profit to net cash inflow/outflow from operating activities.
Answer
To reconcile the operating profit to the net cash inflow from operating activities, we start with the operating profit and adjust for non-cash items and changes in working capital:
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Operating Profit: We begin with the operating profit of €156,000.
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Add Depreciation: We add back depreciation of €30,000, which is a non-cash charge, giving us:
Operating Profit + Depreciation = €156,000 + €30,000 = €186,000
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Adjust for Stock Increase: Since stock has increased by €10,000, this represents an outflow of cash:
€186,000 - €10,000 = €176,000
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Adjust for Decrease in Debtors: The decrease in debtors of €2,000 means cash has been collected:
€176,000 + €2,000 = €178,000
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Adjust for Increase in Creditors: An increase in creditors of €10,000 indicates that cash has been retained:
€178,000 + €10,000 = €188,000
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Net Cash Inflow from Operating Activities: Therefore, the net cash inflow from operating activities is:
€188,000.
Step 2
Prepare the cash flow statement of Rush Ltd. for the year ended 31/12/2021.
Answer
Cash Flow Statement of Rush Ltd. for the year ended 31/12/2021
1. Operating Activities
Net cash inflow from operating activities: €206,000
2. Returns on Investments and Servicing of Finance
Interest paid: (€20,000)
3. Taxation
Tax paid: (€28,000)
4. Capital Expenditure and Financial Investment
Purchase of land/buildings: (€220,000)
5. Equity Dividends Paid
Dividends paid: (€27,000)
6. Financing
Issuance of ordinary share capital: €40,000 Share premium: €24,000 Debentures: €30,000
Increase in Cash
Total cash changes: €94,000
Step 3
Reconcile the net cash flow to movement in net debt.
Answer
To reconcile the net cash flow to movement in net debt, we follow these steps:
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Increase in Cash in the Period: Net cash flow for the period is €94,000.
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Debentures: New debentures issued amount to €30,000.
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Change in Net Debt: This is calculated by considering the opening and closing balances of net debt.
Net Debt 01/01/2021: €205,000 Net Debt 31/12/2021: €230,000 Change in Net Debt = Net Debt 31/12/2021 - Net Debt 01/01/2021 = €25,000.